FDIC Law, Regulations, Related Acts

4000 - Advisory Opinions

This responds to your letter to Mark Mellon dated October 28, 1994,
which requests guidance regarding the reporting of unused portions of
approved lines of credit.

As you were previously advised by our letter dated August 30, 1994,
credit is considered to be extended when the bank enters a binding
commitment to extend credit and the borrower becomes obligated to the
bank. Where a line of credit is approved, but the bank retains a right
of refusal as to draws on that line, credit may be considered to be
extended only at the time of the draw, if, in fact, that is when the
borrower becomes obligated. Any determination regarding the time the
obligation arises must be based upon the facts of the particular case.

Your letter describes the following as the procedures in place at
the bank. The bank's board of directors approves a line of credit, a
note is issued and signed by the borrower for the full amount of the
approved line ($500,000), and the full amount is posted to the bank's
outstanding loans. The following day, a nonmonetary credit is posted to
the borrower's loan balance to reduce the balance to the amount of the
borrower's initial draw ($100,000), and a proceeds check is issued in
the amount of the draw. All subsequent draws are subject to the
approval of the lending officer before a proceeds check is issued.

Your letter does not indicate the precise terms of the bank's
approval of the line of credit or of subsequent draws. If, for example,
the bank has committed to extend credit in draws for a stated period
(e.g., 90 days) subject only to the approving officer
confirming that there has been no material adverse change in the
borrower's circumstances, the bank is obligated to the full amount of
the credit line, and must report the full unused amount ($400,000) on
Call Report Schedules RC-L1 (Unused commitments) and the full amount on
RC-M--Memoranda la (Extensions of credit to executive officers,
directors, etc.). If, however, the approving officer must make a
fully-informed credit decision before a draw is approved, such as is
made at the time the line of credit was approved (e.g., a
credit check is made of the borrower and a new credit decision is made
regarding the making of each draw), then the unused portion of the line
of credit ($400,000) need not be reported by the bank on those
schedules.

I hope this letter sufficiently answers your inquiry. Please do not
hesitate to contact us if you have any further questions.